Compliance – Due Diligence

With the beginning of the New Year, have you put into place processes to help protect the integrity of your business?

Let’s look at your Referral Sources;

1. How well do you know your Referrer’s business?
2. Do you understand the Referrer’s process when referring clients?
3. Would the Referrer enhance your business or add Risk?
4. Do you have in place appropriate referral agreements under NCCP?

Case Study

Our Compliance Team recently had a scenario where a broker was introduced to a client from by existing referrer.  The broker interviewed the client and sighted the original identification; however, the client did not have any of their supporting documents, and told the broker that they would email/fax it as soon as possible. The client also told the broker that they needed a quick settlement due to a deadline and requested that the broker move quickly.  Due to the urgency, the broker lodged the deal in anticipation of receiving the supporting documents.

The client then handed copies of their supporting documents to the referrer who in turn took them directly to the lender on the broker’s behalf.  Neither the broker nor the referrer had sighted the original supporting documents.  Because the deal was submitted using the broker’s code, the broker is automatically responsible for anything that may be suspicious within the deal.

The lender as part of its standard processes checked the validity of the supporting documents. This check uncovered fraudulent bank statements and various other anomalies.  Subsequently the deal was declined and the lender investigated the broker’s other files and suspended the broker’s accreditation.

The lender notified Connective, and a formal interview was conducted between the broker, the lender and the Connective compliance team. Upon completion of the interview, even though the broker was not involved in knowingly providing fraudulent documents to the lender, it was clear that the broker had not adhered to the lender’s policy requirements and had signed a declaration on the application form stating that they had sighted all original documents.  The broker unfortunately lost their accreditation with the lender and as a result also with Connective.

Summary

The broker should not have allowed the referrer to collect the supporting information from the client. The broker should have only submitted the deal once they had sighted and copied the original supporting documents themselves.  If the broker had insisted on sighting the original documents, it is highly likely that the fraudulent borrower would have looked to take their business elsewhere, and the broker would have saved themselves much trouble.

Please take the time to ensure that you limit the risk to both yourself and your business by looking at the real scenario above and take the time to sight and copy the original supporting documents yourself every time.